Yet, for all Germany's fear of becoming locked into permanent support for the Irish and others, the irony is that it is already providing involuntary `bailouts' via the eurosystem that carry similar risks. In the Irish case, this is both larger than the EFSF bailout , 146bn as against 67bn, and much cheaper, 1% interest as against 5.8%. Pushing the Irish and Greeks into official EFSF-style bailouts thus worsens their finances and makes default more likely.

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In the event of Irish - or Greek - sovereign default, it is not clear whether losses would fall on national central banks or on the ECB. But this is of little relevance as the national central banks are the ECB's shareholders and the Bundesbank is both the largest shareholder and the largest eurosystem lender. Losses of the Bundesbank would be for the account of the German treasury.

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As the ECB raises its official interest rates, this will have much the same effect as EFSF bailouts. It will bring closer the moment at which the debts of Ireland, Greece and Portugal have to be `restructured', regardless of any efforts to push these countries into greater austerity.